ARLINGTON, VA—Even as anecdotal evidence points to a surge in development activity, the numbers suggest that the previous cycle’s heights haven’t been reached yet. The Associated General Contractors of America said Wednesday that construction spending reached its highest level in May since October 2008, but cautioned that a risk of labor shortages could sap momentum, while Rider Levett Bucknall uses the term “slow growth” to describe the sector’s year-to-date progress.
AGC says construction spending in May totaled $1.036 trillion at a seasonally adjusted annual rate. That’s 0.8% higher than the April total, notwithstanding a steep upward revision in that figure, and 8.2% higher than the year-ago period.
“There were solid monthly and year-over-year gains in May for all major construction categories—private nonresidential, residential and public,” says Ken Simonson, chief economist at AGC. “The private segments appear poised to maintain growth throughout the year. But contractors increasingly report difficulty in finding workers with the right skills to construct large and complex projects.”
In terms of which sectors face the highest risk of possible labor shortages, Simonson points to double-digit increases year-over-year in construction spending for various private-sector areas. They include manufacturing construction spending, up 70% Y-O-Y; amusement and recreation construction, up 46%; lodging construction, 30%; private office construction, 26%; and multifamily construction, 21%.
“Several components of the private categories posted especially large year-over-year increases,” Simonson says. “Whether they can continue to grow depends in part on companies being able to find enough skilled workers.”
That’s the case even as construction employment expanded in 205 metro areas, declined in 101 and was stagnant in 52 over the 12-month period between May 2014 and this past May, AGC said earlier this week. Although most metro areas are still adding construction jobs, the number of gainers has decreased to the lowest level since April 2013.
The flip side of the 205 metro areas that saw gains is that “construction employment stagnated or shrank in nearly half of all metro areas over the past year,” says Simonson. “With Washington unable to figure out how to finance infrastructure and a number of large energy projects getting put on hold, the sector’s recovery appears to be slowing in certain parts of the country.”
RLB would attribute gains in spending partly to inflation. The international consulting firm, with US headquarters in Phoenix, points to cost inflation rising at an annualized rate of 5.5% in the second quarter, a faster pace than ENR’s Building Cost Index.
The firm’s latest Quarterly Construction Cost Report for the US says construction put-in-place saw a “paltry” 1.7% increase Y-O-Y, while the Q1 construction unemployment rate increased over last year’s second quarter, although it declined to 7.5% in April. Further, the report notes the American Institute of Architects’ March Architectural Billing Index was a “lackluster” 51.7, while April’s number fell to 48.8, “reflecting a decrease in demand for design services,” especially in the Northeast.
“In a rising market, there is normally a gap between growth in labor and material costs and growth in bid costs,” notes Julian Anderson, president of Rider Levett Bucknall North America. “Looking forward, we observe that this gap has been steadily increasing since 2013 and is likely to widen even if the construction industry recovery strengthens.”
